What Fixed Annuity Alternatives Exist?

Life is full of choices and nowhere are there more voices competing for your attention than in the world of investing. There are many solid great investments available. Conversely, there are also very bad investments in every financial category that exists. Investments and strategies are similar to ingredients in the kitchen. For the most part, it is not the ingredients that can be blamed for the terrible meal. It is the cook! Similarly when financial planning or retirement planning take place, it is normally not the investment’s fault but the incompetent or self-serving planner that used their influence to their clients chagrin.

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Each investment ingredient, when used properly, will complement the whole of the financial plan, thus creating if you will a superb gourmet retirement rather than a shortsighted distasteful one. Okay enough of the metaphors! Do not try to use alternatives where annuities are the best answer. Likewise, do not use annuities where they do not fit or give you a reasonable advantage. There are obviously investment vehicles that are different. Yet, they may each in there own way, at certain times, help accomplish the financial objective. If you have a larger portfolio, it is probably not wise to place most of it in annuities; however, if you have modest or moderate funds that you must rely on for present or future income, then having the majority of it in an annuity may be the best strategy. An alternative for the sake of an alternative with no solid rationale behind it will likely lead to a disappointment at best. Using a skilled financial planner/educator who knows how to really put the ingredients together can enhance your success. It is very important to know that the planner is competent and trustworthy. Do a serious background check and also check references before handing over any of your life savings. As you should know, there are a lot of investment alternatives to choose from. Here are a few to consider:

Certificates of Deposit
Money Markets
Bills
Savings Account
Treasury Inflation Protected Securities
U.S. Government Bonds
Municipal Bonds
Investment-Grade Bonds
Junk Bonds
Bond Funds
Bond ETFs
Preferred Stock
Common Stock
Managed Money Accounts
Stock Options
Real Estate Investment Trusts
Mutual Funds
Exchange Traded Funds
Unit Investment Trusts
Closed-End Funds
Modified Endowment Contracts
Investment-Grade Life Insurance

Fixed Annuities

Lump-sum or periodic contributions
Invested in mostly high quality A-AAA bonds
No risk to client. Insurance company assumes all risk
Guaranteed interest
Modest growth
3% to 6% interest crediting possible
1- to 15-year term
Predictable, simple
Guaranteed retirement income
No annual fees

Fixed Annuity with Indexing Options

[FIA, Fixed Index Annuities]

Lump-sum or periodic contributions
Invested in mostly high quality A-AAA bonds
Annual interest crediting risk to client
Insurance company **guarantees principal
Higher rate potential based on index performance (such as S&P 500, Dow Jones, NASDAQ, etc.)
Moderate growth
4% to 8% interest crediting potential; varies with index performance
3- to 14-year term
Sophisticated,greater potential
Guaranteed retirement income options
Annual fees, minimal to none

Variable Annuity

Lump-sum or periodic contributions
Invested in sub-accounts chosen by client
Principal and return risk. Client assumes investment responsibility
Higher rate potential based corresponding investment risk
Moderate to aggressive growth
-5% to +10% return potential; varies with economic factors
3- to 10-year term
Complex, greater potential and risk
Guaranteed retirement income; may fluctuate based on returns
2% to 5% annual fees

Immediate Annuity

Lump-sum-only contributions
Invested in mostly high quality A-AAA bonds
No Risk to client. Insurance Company assumes all risk
Guaranteed income
Minimal growth
1% to 3% Internal Rate of Return
5- 10- 15- 20- 25- 30-year and lifetime terms
Predictable, simple
Guaranteed retirement income
No annual fees

Common Annuity Benefits

Safety: Backed by highly rated state regulated insurers
Tax Deferral: Tax-deferred growth
Higher Return: Better interest rates typically than CDs
Life Insurance: Death payout **guarantee options
Liquidity: Flexible withdrawal privileges
Unlimited Contributions, Unlike IRAs and 401(k)s
Inheritance: Pass money directly to heirs bypassing probate
Lifetime Option: Income you can’t outlive (Annuitization or a Living Benefit Rider)

Each of the investment categories and the four listed annuities serve a particular purpose. It is important to look at your age, size of assets, future income needs, and inflation and then do a cash flow analysis over your life expectancy during retirement. This will help you choose which investment or annuity is right for you. Financial planner/educators can be valuable when you are close to making a decision on an annuity or an investment. Avoid insurance salesman that are just pushing their higher commission products.

Question: How can you be certain if an advisor is just a self-serving, commission-motivated insurance salesman?

Answer: Their breath stinks! Otherwise known as commission breath. They are a little pushy, lacking objectivity and detail their goal is to “close you” (you are their lead). You can actually smell their breath from miles away!